Chinese, U.S. rail firms eye Mexico as reforms loom -lawmaker

Gabriel Stargardter

4 MIN. DE LECTURA

MEXICO CITY, Feb 25 (Reuters) - U.S. and Chinese rail companies have expressed interest in the Mexican rail freight market if a bill that seeks to open up the sector to more companies is approved, the head of the lower house of Congress’ transport commission said on Tuesday.

Earlier this month, Mexico’s lower chamber overwhelmingly approved a reform of the rail freight law which would open up a sector controlled almost entirely by two concession-holders: Grupo Mexico’s Ferromex and Ferrosur railroads, and Kansas City Southern de Mexico.

Under the terms of the bill, which still has to be approved by the Senate, these concession-holders would be forced to share their lines or risk losing them. They would also have to publish prices they charge customers for interconnections with routes owned by other companies.

“What’s this proposal aiming to do? Bring new players into the market,” lawmaker Juan Carlos Munoz, a member of the opposition National Action Party, told Reuters.

“There’s an interest in China to enter Mexico’s rail market, the United States and China,” he added.

Munoz declined to name the companies that had expressed interest, but said any potential newcomers would benefit from a recently approved overhaul of Mexico’s long-shuttered energy sector, which aims to lure foreign investment.

Rail freight is crucial for Mexico’s fast-growing auto production and manufacturing sectors, which are key to economic growth, and the energy reform is also expected to boost sales.

However, some customers, like steel producers, say the lack of competition makes for exorbitant freight prices.

LEGAL CHALLENGES

U.S. railroad companies already have investments in Mexico. Kansas City Southern de Mexico is owned by U.S. firm Kansas City Southern while U.S. rail firm Union Pacific Corp owns about a quarter of Ferromex.

Munoz said the bill could allow these companies to set up their own businesses, without local partners.

“Union Pacific ... has a great opportunity to separate itself,” he added. “To become a new concession-holder without being involved with Ferromex. It opens an impressive opportunity for them.”

Union Pacific did not immediately respond to requests for comment. A spokeswoman for BNSF Railway Co, one of the largest U.S. railroads, also declined to comment on the bill.

Munoz said that if the bill is approved, big industrial players, like cement producer Cemex, could build their own lines, use their own cars and locomotives and pay the current concession-holders if they needed to use their lines.

Both Ferromex and Kansas City Southern de Mexico have already said they are mulling legal challenges to the bill, which they say ignores a concession granting exclusivity for another 14 years.

In 2013, Grupo Mexico’s transport unit, which commands the lion’s share of the rail freight market, generated record sales of $1.86 billion.

Munoz said he expected the Senate to make certain changes to counter the argument made by the current concession-holders that the proposed bill sets a worrying precedent as Mexico tries to lure new investors into its oil and gas sector.

“(We‘re) certainly looking to give legal certainty in all international areas,” he said. “We don’t want to generate a bad impression abroad.”